GlaxoSmithKline plc (ADR) (NYSE:GSK) also used the same tactics as Pfizer — resort vacations, hunting trips, concert tickets and more — to encourage doctors to prescribe their products for off-label uses. Despite pleading guilty, GlaxoSmithKline stated that the guilty verdict did “
not constitute an admission of any liability or wrongdoing in the selling and marketing of (its products).”
Novartis AG (2013)
Just when you thought that the heavy fines levied against Pfizer and GlaxoSmithKline plc (ADR) (NYSE:GSK) had taught the industry a lesson, the U.S. government recently hit Swiss drugmaker Novartis with two civil lawsuits within four days.
The charges are familiar — paying multimillion-dollar kickbacks to doctors for prescribing their drugs for off-label uses. This is not Novartis’ first clash with the U.S. government — it was fined $420 million in 2010 after the company pleaded guilty to encouraging doctors to prescribe the illegally marketed epilepsy drug Trileptal to patients.
This time, the U.S. government has charged Novartis for providing excessive kickbacks to doctors, such as expensive dinners, luxury fishing trips, and other packages in exchange for speaking endorsements at Novartis-sponsored events. The speakers allegedly received between $750 to $3,000 for their participation. The U.S. government claims that over a nine-year period ending in 2011, Novartis spent nearly $65 million on these promotional activities, which included 38,000 speaker programs.
Much of the case centers on Novartis’ two hypertension drugs, Lotrel and Valturna. Valturna was pulled off the market a year ago, after research showed that it could cause kidney failure, low blood pressure and high potassium levels. Novartis allegedly encouraged doctors to over-prescribe these two drugs at their promotional events.
In addition, Novartis has been charged with persuading thousands of pharmacies across America to switch drug treatments for kidney transplant patients to its own immunosuppressant drug, Myfortic. These pharmacies allegedly took kickbacks from Novartis, disguised as bulk rebates and discounts.
Novartis is now being sued by 27 states, the District of Columbia, Chicago and New York City for healthcare fraud, since many of these payments were paid through Medicare and Medicaid programs. The combined parties now seek triple damages from Novartis for the alleged fraud, which means that a settlement against Novartis could set yet another record for the industry.
The Bottom Line
Big pharma has long claimed that these incidents all merely reflect the “cost of doing business.”
While I believe that pharmaceutical companies should be free to promote the intended, FDA-approved usages of their drugs to doctors and pharmacies, I believe that off-label promotion is a slippery slope that borders on the unethical.
Despite these continuing regulatory threats, all three companies have performed exceptionally well over the past year in comparison to the broader market. In addition, they all pay dividend yields exceeding 3%.
Therefore, big pharma faces similar headwinds as big tobacco. Although the industry appears to be under constant regulatory pressure, it continues to grow as new research yields new medicines, which add to its top line growth. In conclusion, although big pharma companies are controversial, they are solid investments that tend to bounce back strongly even after being knocked down by multi-billion dollar fines.
The article Big Pharma’s Kickback Conundrum originally appeared on Fool.com is written by Leo Sun.
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